No respect! No respect at all! Joe Biden may feel that 1980s gag line hitting home when he reads polls indicating that the U.S. public thinks he’s doing a bad job on the economy.
This even though all the key numbers — inflation, unemployment and output — show the economy is doing very well. In fact, right now the U.S. is doing the best of any of the G-7 industrialized economies in all three of these metrics.
But Joe’s newly branded “Bidenomics” is getting little credit so far. Why?
To understand this, we could hark back to the 1992 presidential campaign between George H.W. Bush and Bill Clinton. At an early debate in which audience members could ask questions, a young woman asked Bush what he was going to do about inflation.
Bush was flummoxed. Inflation in mid-1992 was running about 3%, about the lowest in more than 20 years, and during his first term it was the best since the Johnson administration in the late 1960s. Low inflation was an accomplishment Bush was proud of. But he was too much a gentleman to imply the questioner was ignorant. So he stammered a garbled reply.
Clinton, a quicker-on-his-feet campaigner, understood that by “inflation” the woman meant general dissatisfaction with the economy. He shifted into his oiliest “I feel your pain” mode, smoothly misrepresented Bush’s record for the worse, and gave bland assurances about how he would fix everything.
Biden should consider that. Perception and reality are often two very different things.
So while negative political terms like “inflation” and “recession” don’t have precise economic definitions the way “non-farm payrolls” or “monetary base,” do, economists are in close agreement with what they mean. Inflation is “a rise in the general price level;” recession is “a marked drop in economic activity and rise in unemployment.”
But to many in the general public, “inflation” means not only rising prices, but also other economic ills, such as people not getting jobs or even employers not getting workers. After a period of rapidly rising consumer prices, “inflation” is a catchall for economic woes.
That’s the perception.
The reality is that over the last six months, the Consumer Price Index — the most widely reported monthly inflation measure — has increased at a 3.2% annual rate. For the last three months, that annual rate is down to 2.2%. To economists, that is not bad. From the end of World War II to the present, it averaged 3.5% annually. From 1970-1990, it averaged 6.2% a year. From May 2000 to May 2023 it was 3.5%. So for old fogies like me, 3% annually is not high.
Similarly, the unemployment rate for June, reported Friday, was 3.6%, slightly under the average for the last year and largely unchanged over the last six months. In the last 50 years, this rate has fallen below 4% in only 43 months. These include 20 of the 48 months Donald Trump was in office and 18 of Biden’s 29 months. Presidents Nixon, Ford, Carter, Reagan and H.W. Bush never had a single month this low. It is hard to argue that unemployment is high.
Growth in the number of jobs is similarly strong by historical standards. Ditto for growth in the value of total output after adjustment for inflation. Ditto for “real per capita personal disposable income.”
OK, so the numbers look pretty good right now. This is especially true if one compares our economy to that of western Europe or Japan.
So why does the general public regard Biden in such a bad light in terms of the economy?
The answer goes beyond perception and Republican political rhetoric. The reality is found in an important number omitted above, that of the cumulative increase in consumer prices over the time Biden has been in office. Yes, increases in prices over the last half year have been low. But they were 15.5% higher in May than when Biden took office 28 months earlier. The cumulative increase during Trump’s full four years was only half that, 7.8%. During Biden, this increase already tops the total of 15% for Barack Obama’s full eight years, although still below the 21% for those of George W. Bush.
And this is an example of an economic truism always taught to intro students. Unemployment affects a small fraction of the population a great deal while leaving the large majority unaffected. Inflation affects everyone, although not as equally as many assume. So the population as a whole gets more worked up about inflation than unemployment or slow growth in output or even in incomes.
Price increases are particularly shocking when they show up in weekly purchases such as food and gasoline rather than in rents, new vehicles or medical costs. That is precisely where the big jumps from the spring of 2021 through autumn of 2022 hit. Economists can look at the CPI numbers and see below-average increases in the last few months, but in the real world, every time someone buys a beef roast or a tank of gas they get slapped in the face with a bill that is sharply higher than they remember three years ago. There is nothing ignorant or illogical or partisan in that. It is human nature.
Moreover, perceptions of danger can be greater when there is general unease or when there are active efforts to foment tensions. We had relatively high unemployment 60 years ago, with only one month below 5% from the end of 1957 to the end of 1964. Yes, John Kennedy ran on a platform criticizing the Eisenhower administration’s poor economic performance. But unemployment did not drop until after Kennedy’s death.
Back then, CBS, NBC, the Wall Street Journal and the New York Times all reported economic news in generally the same way. Editorial positions varied slightly as did speeches by politicians from the two parties. But there was no Fox News proclaiming disaster. There was no Twitter or TikTok providing radicals, nincompoops, the delusional or the nefarious with a megaphone voice. There were no day traders or online memes or cryptocurrencies creating or destroying securities values in an instant.
There was great confidence in institutions and in the effectiveness and fairness of our market economy. This began crumbling with cultural rebellions of the baby boomers in the 1960s, Watergate, and as both liberals and libertarians began questioning the veracity of government. But, in retrospect, even in the most conflicted years from 1965 to 1975, we were a much more united nation.
How all this will play out for Biden in the 2024 elections is anyone’s guess. More shocking or divisive events may divert attention from daily prices and may not. We will know more over the next 16 months.
St. Paul economist and writer Edward Lotterman can be reached at [email protected].
